Bush makes defense firms nervous

Few things can rattle the defense industry more than a new American president, so early in last year's election season the Aerospace Industries Association set out to determine which candidate best suited its agenda.

Officials made a chart of the industry's goals, and whenever Al Gore or George W. Bush supported one of those goals they pasted a picture of his face alongside.

By Election Day, the faces of both candidates flanked every item on the chart.

"We aren't like Medicare, we aren't like Social Security, we aren't like large or small tax cuts," said John W. Douglass, president of the association.

"We tend to be the centrist position, where the two parties come together."

Evidence of bipartisan harmony is a welcome source of optimism this year in an industry that is expected to rebound slightly from 2000's stall, but whose future may be beholden more than ever to the fledgling president and an always fickle Congress.

Sales for the aerospace industry and its related defense products are expected to rise slightly more than 1 percent in 2001, after falling nearly 5 percent last year, according to an analysis prepared for the association.

But that comparatively rosy fate is dependent on a handful of large and expensive new programs, all of which could face heightened scrutiny this year if the slowing economy erodes the federal budget surplus. One or more defense projects falling out of favor in Washington could shatter hope of a recovery.

Early this year, the Pentagon will select the primary builder for the Navy's new Zumwalt class of destroyers. While not expected to enter service until 2008, the Zumwalt class ships could finance billions of dollars of research and manufacturing work for the next two decades.

And in the fall, the Pentagon is expected to select a design for the proposed Joint Strike Fighter for the Air Force, Navy and Marine Corps.

The billions of dollars tied up in those two programs and several other young defense projects - such as the F-22 Raptor, the Comanche attack helicopter and a next-generation aircraft carrier - are enough to give defense industry officials fits anytime someone on Capitol Hill opens a wallet.

"There is an awful lot out there, and there are a lot of dreams that could be dashed," said Richard L. Aboulafia, an aerospace analyst for the Teal Group in Fairfax, Va.

All of the nation's large defense contractors have an interest in the Pentagon's decisions expected this year, but the stakes for Maryland companies are particularly high.

Lockheed Martin Corp. heads a team designing the Joint Strike Fighter, and will compete with a similar team headed by Boeing Co. The outcome could determine whether the Bethesda defense giant and Boeing have a future in the fighter aircraft business.

Northrop Grumman Corp.'s Baltimore-area division provides the radar and avionics for Lockheed Martin's Joint Strike Fighter entry, and is offering to build the propulsion systems for both shipyards competing for the Zumwalt destroyers. BAE Systems, a British company whose American division is based in Rockville, also is part of Lockheed Martin's Joint Strike Fighter bid.

Bush promised during last year's campaign to seek increased defense spending, expecting the nation's budget surpluses to continue well into the 2000s. He has advocated a national missile-defense system, the cost of which analysts say could approach $60 billion. And he has suggested boosting research and development spending by $20 billion.

But the Republican president's support for defense spending has done little to ameliorate those most concerned with the specifics. Besides increased spending in general, Bush has also proposed a strategy of "skipping a generation" in weapon's technology - a tactic that could lead to canceling some programs in favor of further spending for research.

Bush's advisers have promised a sweeping review of the budget for new aircraft, revealing skepticism that all three of the Pentagon's proposed new fighter aircraft are necessary - the F-22, an advanced version of the Navy's F-18 and the Joint Strike Fighter.

And while the Zumwalt is hailed as a revolution in floating weaponry, with advances in radar, crewing requirements and propulsion, all that innovation comes at a price - as much as $1 billion per ship.

Given the costs, some industry analysts suspect that Congress will grow increasingly content this year with the cheaper Arleigh Burke class destroyers already in production.

"I think there are too many programs in general for the amount of money that's there," said Cai von Rumohr, a defense industry analyst for SG Cowan Securities Corp.

"There was a slowdown after the Persian Gulf war, and the result is that now all these programs are colliding at once.

"Whether it's the JSF, or the V-22 Osprey or DD-21 the Zumwalt destroyer, there's an enormous likelihood of something slipping this year."

Because a blueprint of the 2002 budget must be submitted to Congress by February, not long after Inauguration Day, the new president won't really craft his own budget until early next year when work on the 2003 budget begins.

But what they can't do with the budget, presidents have often done with policy - such as when President Jimmy Carter canceled the B-1 bomber program in 1976.

Bush has already said that he considers the proposed production of 3,000 Joint Strike Fighters to be "a bit much."

The future of the defense industry is often pegged to the Joint Strike Fighter, if only because its $200 billion pricetag would be the largest ever. And the future of that new fighter has often been questioned, mostly because the concept of one weapon satisfying the disparate needs of the Navy, the Marines and the Air Force is a foreign one.

But skepticism has mounted as the Pentagon inches closer to selecting either Lockheed Martin or Boeing to build its new fighter plane.

"My doubts have given way to misgivings and my misgivings have given way to actual fear," said Aboulafia. "If the JSF is canceled, at least we'll know what we have for the future ... .

"But the bad news is that you lose all hope for the kind of robust growth that the industry had anticipated."